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Rob Marris : I seem to remember having the great pleasure during the last Parliament of serving with the hon. Gentleman on the Work and Pensions Committee. The Committee produced a report on child poverty on the information then available, and, as I recall, the whole Committee expected the Government to reach their 2010 target. Is the hon. Gentleman now saying that he does not think that that was right, or have I misremembered his signing up to that report?

Andrew Selous: No, the figures that I have just quoted are from the study of households on below-average
 
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incomes by the Department for Work and Pensions, which was only released on 30 March this year, after the hon. Gentleman and I had finished our pleasant period of serving on the Select Committee. So these figures were published after our discussions at that time.

The tax credit system desperately needs to be refocused, so as to do more for poor couples in work. I shall give another example. A couple with one earner on an average income of £462 a week and a below-average mortgage, and with children aged two and four, would be left with £223 after tax and housing costs. However, were the couple to split up, they would be left with £369, which is £146 more. If they were living in private rented accommodation, the figures would be accentuated even more.

Mr. Eric Martlew (Carlisle) (Lab): I have been listening closely to the hon. Gentleman, and I heard him say that he did not want to take any money away from single parents. Will he explain how the extra money would be given to couples to make up the difference?

Andrew Selous: Yes, with pleasure. We have to take into account the system that we have now, but in future, we should rectify the imbalance. That would probably mean adjusting the system, and I would be more interested in the family with children that is £22 below the poverty line than the family with children that is £66 above it, as I am sure the hon. Gentleman would be if such people were his constituents. We need to tweak the system in the future—we do not propose taking money away from anyone now—to create a genuinely level playing field. We would then not discriminate against children because of their family situation. That is the consequence of the present system, and there has not been nearly enough acknowledgment of that fact.

I am sure that the hon. Gentleman salutes the Child Poverty Action Group for its work in this area over many years. In its recent document, "Ten Steps to a Society Free of Child Poverty", it says:

"The focus on benefits for children has been welcome, but children's benefits do not act in isolation. It is family income which must be considered."

That is the point that I am making. There has not been sufficient recognition of the problems in that area.

There is evidence that the tax credit system is having some perverse unintended consequences for our constituents. John Haskey, formerly of the Office for National Statistics and now a visiting research fellow at Oxford university, estimates that some 2 million men and 2 million women aged between 16 and 59 have a partner living elsewhere, and that there are 1.2 million couples who are living apart together—LATs, as they are known in the new sociological jargon. A quarter of all lone mothers with children have a partner who lives elsewhere. It is those couples who are likely to be discouraged from living together by the operation of the tax credit system, and who could blame them? If they choose to marry or cohabit, they will lose most of their tax credits, which would make many of them worse off, even after the reduced housing costs that would result.

If we are serious about tackling child poverty, particularly among the majority cohort whose parents are in work and living together, we must address these
 
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serious issues. I hope that the figures released on 30 March by the Department for Work and Pensions will sound a warning note to the Government, and that they will take them into account when they consider the future design of the tax credit system. We might then have a tax credit system that does not discriminate against any particular family form. That would go a long way towards encouraging family stability, which all of us in the House want to see fostered.

5.59 pm

Mr. Stephen Dorrell (Charnwood) (Con): I am delighted to follow my hon. Friend the Member for South-West Bedfordshire (Andrew Selous), who made some important points about the distributional effect of the current structure of benefits operated within the tax credit system. The points that I want to make, however, follow more naturally from those made by the right hon. Member for Birkenhead (Mr. Field).

I have a slightly odd personal history on the issue of tax credits. When I was appointed as a fresh-faced Financial Secretary to the Treasury in the 1990s, I was interested in the question of whether some of the principles of tax credits first espoused in the Green Paper published by the Heath Government, to which the right hon. Member for Birkenhead referred, could be excavated. It may be of some interest to the House to know why, as a Treasury Minister who was relatively benignly inclined towards the principle of tax credits, I was dissuaded from that and persuaded that the costs of that system, in terms of excessive bureaucracy and the risks of genuine injustice to poor people, outweighed any potential benefits. Those costs are now manifest in our constituents' lives, and they should give us pause for thought now along the lines suggested by the right hon. Gentleman.

The right hon. Gentleman is surely right: there is no disagreement about the core objectives of policy in this field. Despite what the hon. Members for Doncaster, North (Edward Miliband) and for Normanton (Ed Balls) might want to be the case, of course Members in all parts of the House want to see poverty eliminated and the system of benefits that we use to do that reconciled as far as is possible with the preservation of incentives for people in work. Those were the two principles that the Chancellor espoused as the primary policy drivers for the introduction of his tax credit system. Indeed, the Chancellor and his acolytes sometimes like to talk as though they were the first people in history ever to be interested in the elimination of poverty and the reconciliation of a benefits system with work incentives.

David Taylor (North-West Leicestershire) (Lab/Co-op) rose—

Edward Miliband rose—

Mr. Dorrell: As the right hon. Member for Birkenhead reminded us, we have been discussing this issue for 40 years. He referred to tax credits, but he might also have referred to a book that Daniel Moynihan wrote at around the same time on the introduction of a negative income tax. These are not new ideas. What is new is that the Chancellor concluded
 
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that all the difficulties identified by the right hon. Member for Birkenhead and anyone else who had taken a serious interest in the issue throughout the period could at best be wished away and at worst overridden by mere expression of political will. The Chancellor and his    acolytes made the mistake of fundamentally underestimating the complexity and difficulties inherent in the policy that they were determined to espouse.

David Taylor: The right hon. Gentleman said almost in passing that of course we all want to get rid of poverty. However, poverty is, by definition, a relative, statistical concept. Will he confirm to the House that in fact he was a Minister in a Government who positively moved away from trying to have a more equitable distribution of income and wealth, and who positively espoused the trickle-down theory that tackled neither of those problems?

Mr. Dorrell: What I will confirm to the House is that I was a supporter and member of a Government who saw huge improvements in living standards across the community and in the working of the labour market. The hon. Gentleman might prefer to see his Government reverse that but as he knows, his right hon. Friends refuse to do so because they know that the labour market changes that we introduced have delivered improving living standards across the piece. He is right that poverty as measured is a relative concept, which is why it is a more accurate definition of policy objectives, in my view, to espouse the raising of living standards across the piece, providing to every section of the community better access to opportunity to improve their living standards. The problem with the tax credit system that we are debating today is that it has not reconciled the dangers associated with excessive complexity and bureaucracy with the delivery of other public policy objectives.

Why was I persuaded, as a fresh-faced Financial Secretary, that the system was not worth the candle? First, as has been pointed out several times previously, it is simply a fallacy to consider the benefit system and the tax system and to say that they are both to some extent means-related and that they can therefore be merged into the same system. That is the approach that the Chancellor has taken—to imagine that because the Inland Revenue in its old incarnation made an assessment of means, and because the Department for Work and Pensions made an assessment of means, we could somehow merge the two systems into a single tax and benefit system. As the right hon. Member for Birkenhead said, that view overlooks the obvious but fundamental point that the tax system is based on an annual assessment of means, whereas the benefit system, if it is to provide secure income to the benefit recipient, must be based on a much more short-term assessment of the needs of the individual.

As for all the arguments that we have heard elucidated today about the difficulties—and moreover the injustices—associated with reclaiming overpayment of tax credits, those difficulties arise because the system now seeks to reconcile retrospectively a means-tested benefit system back into the previous tax year. That mismatch between the two systems ultimately led earlier policymakers to conclude that we should not go down that route, and still leads me to believe that the Government might ultimately have to conclude that
 
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their system must be fundamentally rewritten. I say that as someone who does not think that we should change the rules of such systems every six months, which in itself leads to further complexity and injustice.

If Ministers really believe that one more heave will deliver a sufficient improvement in the operation of the system to address all its difficulties, they are entitled to a hearing. But as one who considered it in the past, and who has seen too many of the predictions that were then used to dissuade me from that course come true, I allow myself a certain scepticism as to whether one more heave will in truth be enough to eliminate all those difficulties.

There is one other aspect, on which we have not touched today, that has made the system even more complex than it probably otherwise needed to be: the Chancellor's view—with which, again, I have some sympathy—that some of the combined effect of the tax system and benefit withdrawal led to sharp work disincentives as people saw their benefits being withdrawn. The background papers at the time that the tax credit system was introduced referred to the withdrawal ratio for family credit of 70 per cent.—for every £10 of extra earnings that the family secured, £7 was lost in family credit withdrawn—and the Chancellor sought to reduce that rate of tax and benefit withdrawal. There is a tension there, too, however, as whenever one tries to reduce the rate of taper, one extends further up the income scale and includes more families in precisely the problem that one seeks to control. Not only has the system been made much more complex by the merging of the tax and benefit systems, but the reach of the system has been extended further up the income scale, so that more families are affected than were affected by the previous benefit structure. If we stand back, we see that the system is inherently complex, regardless of the set of rules that we operate. We have voluntarily made it more complex by mixing an annual cycle with a much more short-term means-assessment cycle, and we have increased the number of people affected by extending it further up the income scale.

Let us step back from the big picture. We then see that the complexities created by that system have caused real injustice, and real concern and worry, to individual citizens on low incomes, who now fill our surgeries. At this point, I ask myself whether the price paid by those people for the system that the Chancellor has willed on us is a price worth paying.

I do not believe that the problems we see in our surgeries result from inadequate computer programming or inadequate training of clerical staff. To believe that would be to make scapegoats of people who have been given an impossible task. The real issue is that policy makers at the highest level have been presented with choices and have made the wrong call. The people paying the price for that wrong call are the people in our surgeries who are worried sick, literally in some cases, by their inability to understand how to dig themselves out of the hole into which those policy makers have put them.

6.12 pm

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